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Fixing the Real Economy

Labour economist Jim Stanford focuses on workers, not paper wealth.

By Tom Sandborn 28 Jan 2009 |

Tom Sandborn is a Tyee contributing editor with focus on labour. He welcomes your feedback and story tips at here.

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Economics for Everyone author Jim Stanford.
  • Economics for Everyone: A Short Guide to the Economics of Capitalism
  • Jim Stanford
  • Fernwood Publishing (2008)

Canadian labour economist Jim Stanford has recently published a primer on capitalism and its discontents, just in time to contribute to urgent debates about how to respond to the current crisis.

Economics for Everyone: A Short Guide to the Economics of Capitalism lives up to its title. At the very least, this is an economics for the 85 per cent of us Stanford says live in households dependent on wage labour, and thus belong to the broadly defined working class, despite the ideologically driven attempt to make that category disappear into a pastel world in which everyone is middle class and rising.

Wage labour households are the ones who got hurt when Canadian manufactured goods experienced their worst monthly drop in history last November, a fact reported in the Globe and Mail on Jan. 20, along with news that the Bank of Canada had cut its key lending rate to 1 per cent, the lowest in 50 years.

The Bank of Canada explained its rate cut decision this way: "The outlook for the global economy has deteriorated since the bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity."

Take careful note of that phrase: "real economic activity." Much of what is most useful and thought provoking in Stanford's sensible book is his rigorous insistence on the difference between the real economy, where real women and men produce goods and services, and the paper economy of ever more abstract financial instruments, that phantasmagoric house of credit cards that has filled up the business pages and the account books of hedge funds, banks and investment houses at a spectacular rate in the past few reckless decades.

Unreal, wasn't it?

Where did all that unreal economic activity take us? Now, even the mainstream pro-business economists who pushed the false dream agree the economy is in terrible trouble worldwide.

What they don't agree on is how to fix matters. The federal budget, announced Tuesday, is being attacked from left and right as either containing too little spending or too few tax cuts. What we can be sure of is that Conservative Prime Minister Stephen Harper is taking firm direction from many of the expensively suited boardroom geniuses who got us into this fix in the first place.

That's what makes the arrival of Canadian Autoworker economist Stanford's book so timely.

Stanford, who will be speaking in Vancouver Jan. 30, diagnoses the current crisis and prescribes economic remedies that just might, if implemented promptly and thoroughly, preserve us from a decade of Grapes of Wrath re-runs on the nightly news.

Along the way he gives the reader a brief history of capitalism, from its swashbuckling and brutal beginnings in England's Industrial Revolution through this winter's flamboyant iteration of its chronic boom and bust cycle. We come to see why capitalism, especially in its current neo-liberal incarnation, is all at once a highly effective engine for wealth production, a ferocious generator of inequality and environmental squalor, and a brittle, fragile system that freezes up as often as an early Microsoft Windows program.

Unfortunately, capitalism does not come equipped with a handy Delete button, and when it crashes it takes down lives and livelihoods by the millions.

Capitalism's new doctors

For a recent look at the scope of the trouble and some modest suggestions for reform, readers may want to consult Nobel Prize winner Paul Krugman's December article in the New York Review of Books and the review of his new book that ran Monday in The Tyee.

Another interesting perspective is afforded in Peter Gosselin's High Wire, a book that is essentially pro-business but states (seemingly almost against the author's will) that the modern capitalist economy is one in which employers can "...shift the consequences of their mistakes onto loyal but defenseless employees."

Within this context, it's no longer possible, as "mainstream" pundits might have tried in the past, to write off Standford's critique as merely the labour line. True, his clear, easy-to-understand text is designed to be accessible to rank and file union members who are his first intended audience. But after autumn's collapse, a much wider audience is prepared to hear Stanford spell out both the system's undeniable strengths and its devastating weaknesses. He sketches the history of economic thought in the West from the mercantilists of the 1600s through the neo-classical cheerleaders for unrestrained capitalist rule, led in the 20th century by Milton Friedman and the notorious Chicago School of economists who, according to Naomi Klein's The Shock Doctrine, provided the blue prints for what could fairly be described as a lethal capitalist counter-revolution, from Chile in the '70s through Baghdad in the new century.

Stanford marshals capitalism's best critics, as well, thinkers ranging from Marx to Keynes who analyzed the inherent instability and human costs of capitalism and proposed alternatives both radical and reformist.

Along the way, Stanford delivers a number of memorable epigrams such as "The economy is too important to be trusted to the economists," and "Never trust an economist with your job." Where the nature of his topic demands some technical language and dry analysis, he strikes a useful balance between analytic rigor and accessible prose. This is particularly notable when he turns his attention to the vexing question that has so far baffled anyone with access to the levers of power: What the hell do we do next?

Organize and invest

Stanford proposes a stronger union movement around the world to empower workers to get a bigger share of the wealth we produce, both through better wages and through redistributive social programs that reduce the inequalities that capitalism sustains and creates. No big surprise there.

Perhaps more surprising (although not entirely, given his role in a union, the Canadian Auto Workers, which represents members in an industry that requires substantial new investment now to survive) is his robust defense of investment as an engine of economic growth. Stanford calls for government policies designed to drive up investments in the real, productive economy to above 20 per cent of gross domestic product. Currently, the Canadian economy would have to increase its investments in non-residential capital by a third, from roughly 15 per cent of GDP to 20 per cent in order to hit Stanford's minimum suggested goal.

If, like your reviewer, your eyes tend to glaze over at the first appearance of statistics or acronyms in a text, you will be relieved to know that Stanford is very sparing with these. Most of the technical stuff is hived off to the book's website.

When Stanford advocates for investment, and for tax policies to support it, he doesn't mean the casino on steroids of abstract financial instruments like "securitized" sub-prime mortgages or asset backed commercial paper that have so dominated the coverage of the latest crisis. He means real, non-speculative investment that builds new factories or delivers real services. He means, for example, green tech plants, hospitals, schools and daycare centres -- not Babel Towers of mysterious paper. So while he advocates for the usual array of progressive reforms -- stronger unions, better public services and infrastructure investments and the like, he places more emphasis than is usual in left-wing discourse on the need to promote and support investment, both public and private, in the real economy.

Where are the women?

Many of Stanford's suggestions will be anathema to the business elite and the journalists who reflect their views, but Stanford cannot be dismissed as someone re-arranging a set of old received left wing ideas. He is clearly willing to think through new positions in new times, and invites the reader to do the same. In fact, his book is designed to be the centerpiece for study and discussion groups among union members and others looking for a way out of the current crisis, the beginning of dialogue rather than the end.

As such, Economics for Everyone is a valuable contribution to the Canadian conversation. Read together with recently released and more pro-business books of popular economics like Niall Ferguson's The Ascent of Money and William Bernstein's A Splendid Exchange, Stanford's book presents both historical perspective and reasonable suggestions about capitalist reform and transformation that we all should consider.

Although this is an important work, a few curious omissions can be noted. Stanford's book is better than those of most male authors in recognizing the special role that sexism plays in forcing women to provide a second shift of unpaid labour in the home, tending to the young, the old and the ill and reproducing the pool of labour needed by the cash economy.

It is striking, however, that he names and cites economic thinkers like Marx, Adam Smith and Milton Friedman, but fails to cite feminist critics like Marilyn Waring, whose If Women Counted did pioneering work in developing the line of thought on women's unpaid labour he properly echoes, and Vandana Shiva, whose analysis of the impacts of international capitalism on third world farmers and women is a crucial addition to our global understanding. This already impressive book would have been made even more useful if it included references to these feminist scholars.

And then there is the vexing question of Canadian content. A somewhat disquieting share of Stanford's economic examples and statistics derive from the United States, and this reader at least would have welcomed a richer set of Canadian data. But these are small defects in a splendid book. Economics for Everyone should be on the reading lists of worried and thoughtful readers across the continent this year.

Jim Stanford will speak in Vancouver Friday. Here is the info.